FTSE 100 hits record closing high again, despite BoE chief economist warning against cutting interest rates too soon – as it happened

After the second closing highs in a row on the London stock market, and a new intraday high this morning, it’s time to wrap up.

Here’s today’s main stories, first on the FTSE 100’s big day:

And here’s the rest of today’s news:

Nils Pratley: FTSE 100 is an international laggard despite its record high

Nils Pratley

Every dog will have its day and here comes the FTSE 100 index, not so much soaring as limping to a record high of 8,076 today.

If that sounds too grumpy, consider that the previous record, 8,047, was set in February last year. In the 14 months it has taken the UK’s premier index to regain its old record level, the S&P 500 index in the US has marched upwards by 22% – and done so in a straight line, more or less, until a slip in the past fortnight.

Also note that the Footsie’s latest push above 8,000 carries a heavy flavour of currency effects at work. The US dollar has been strengthening against most major currencies, including sterling, as markets look at the persistence of inflation in the US and judge that the Federal Reserve may not cut interest rates this year (and could even raise them).

Since 75% of the aggregate earnings of Footsie companies are made in foreign currencies, primarily the US dollar, there is a simple beneficial conversion effect when those profits are expressed in pounds and pence. Rises in the sterling-denominated share prices of Shell and BP, two big dollar earners, account for half of the Footsie’s gains this year.

More here….

Newsflash: The UK’s blue-chip stock index has ended the day at a new closing high, for the second day running.

The FTSE 100 has closed at 8044 points tonight, up 21 points or 0.26% on last night’s closing high.

That’s still some way short of the new intraday record high of 8076 points which the Footsie scaled in early trading this morning, as hopes of rate cuts pushed shares higher.

Stocks have slipped back after Bank of England chief economist Huw Pill indicated that he thinks the first cut in UK interest rates is still a way off.

Retailers were the top risers today, with Primark owner Associated British Foods surging almost 9% today, followed by Ocado (+5.4%) and JD Sports (+3.75%).

Kathleen Brooks, research director at XTB, says the FTSE has fought back after being the wall flower of global stock markets during the Q1 market rally.

Brooks explains:

This is a momentous occasion for the UK index, but the outperformance has been building for the past month. As market volatility has risen, the FTSE 100’s defensive qualities have boosted its attractiveness. It is higher by 1.6% in the past month, even though the S&P 500 has been down by 4.27% in the last four weeks. However, when you adjust for currency effects, the FTSE 100 is lower by 0.66% in the past month.

Thus, the performance of the FTSE 100 depends on what currency you are looking at. In sterling terms it is at a record high, in US dollar-adjusted terms its performance is weaker because of the underperformance of sterling vs, the USD in the long term, as you can see in the chart below. Thus, the FTSE 100 may be lagging its peers because US investors are not so interested in the UK index when returns are lower in USD.

UK banks need to improve their risk management frameworks so they can access the risks from private equity, the Bank of England has warned.

The BoE has written to chief risk officers at UK banks, giving them until the end of August to benchmark their risk management frameworks, and devise a plan to fix any gaps.

This follows a review by the Bank’s Prudential Regulatory Authority, which found that “very few” banks carry out “routine, bespoke and comprehensive stress testing” of their exposure to private equity firms.

That is a concern for the Bank, as the private equity market – which is highly leveraged – has grown considerably over the past decade. Banks’ exposures to the sector have also grown considerably, by offering them a range of financial products.

Rebecca Jackson, executive director for Authorisations, Regulatory Technology & International Supervision at the Bank, says firms need to improve their risk management swiftly.

In a speech to UK Finance this afternon, Jackson explains:

The strong growth and attractive return profile of private equity over the last 10 years has emerged during a period of relatively benign market, economic and liquidity conditions for the sector. Though the economy has seen some major bumps in the road, particularly during covid, we have avoided extended market and economic downturns. While of course this is a very good thing, it does mean that the sector remains untested. Yet the trends that this review has identified; of creeping leverage, large exposures, complicated structures, and poor risk aggregation, all suggest that banks may not be prepared for such a test, if or when it emerges.

And there is the broader and longer-term question of whether developments in the industry constitute a ‘displacement’ – a change in the macro environment or ‘technology’ of Banking, that would be a necessary albeit not sufficient condition for more systemic issues to emerge.

In any event, the need for significant improvements in risk management is clear, and it’s clear that these need to happen now; it’s better, as Shakespeare said, to be 3 hours too soon than a minute too late.

Newsflash: growth across the US private sector has slowed this month, amid signs that demand is weakening as firms cut staff.

That’s according to the latest survey of purchasing managers at American companies, from S&P Global.

The flash US PMI composite output index, which tracks activity across US companies, has dropped to a four-month low of 50.9 this month, down from 52.1 in March. That takes it close to the 50-point mark showing stagnation.

The PMI report shows that firms suffered a drop in new orders for the first time in six months in April. Firms scaled back employment for the first time in almost four years, with business confidence falling to its lowest since last November.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says:

“The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.

The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded.

That might dampen speculation that the US Federal Reserve could raise interest rates even higher….

Kalyeena Makortoff

NatWest bosses were blessed with a snappy sub-one hour AGM this morning (likely helped by Nigel Farage only throwing criticism via social media [see earlier post], rather than in Edinburgh).

But its new chairman, Rick Haythornthwaite, was pushed to weigh in on the planned sell-off of the government’s remaining 28.9% stake. It comes ahead of a much-trailed plan to sell NatWest shares to the public later this summer, with a ‘Tell Sid’-style campaign.

The chairman told shareholders on Tuesday, that once NatWest was fully privatised, it would end a “sorry tale” for taxpayers and the banking group (which was bailed out with £46bn of taxpayer cash in 2008, when it was still known as Royal Bank of Scotland).

Haythornthwaite explained:

“I think there’s a perception there is more intervention from His Majesty’s Treasury than there actually is. I think removing that overhang is of value. It also brings to an end what is a sorry tale for the UK and a sorry tale for the bank.”

Meanwhile, Haythornthwaite also revealed that NatWest had launched an AI review, that identified where they could automate work across the banking group.

“With the use of artificial intelligence, there are material opportunities to pursue further customer benefits and increase efficiency. A bank wide exercise in 2023 identified over 100 priority use cases for AI to address manual operations processes and wider controls.

Ultimately, we want to build a NatWest Group that is simpler and more productive to better serve our customers.”

And despite some slight controversy over the CEO’s salary (for being set at the same level as his predecessor Alison Rose), all of the company’s resolutions, including those regarding pay, passed with flying colours.

Swedish streaming service Spotify is having a good day, after reporting record income in the last quarter.

Shares in Spotify have jumped by 14% at the start of trading on Wall Street, after it reported record high operating income of €168m in the last quarter.

Spotify, which announced 1,500 job cuts at the end of last year, reported today that monthly active users grew 19% year-on-year to 615 million, in the first quarter of this year

Subscribers increasing by 14% year-on-year to 239 million, while total revenue rose 20% compared with a year before.

Daniel Ek, Spotify founder & CEO, says:

“We’ve talked about 2024 as the year of monetization and we’re delivering on that ambition. Now as we’ve shifted to focus on strong revenue growth and margin expansion, we see a clear opportunity to ensure we are also continuing to grow the top of our funnel.

I feel good about the changes we are implementing and remain very confident in our ability to reach the ambitious plans we’ve outlined.”